Chapter 17 International Trade

SSEIN2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade a. Define trade barriers as tariffs, quotas, embargos, standards, and subsidies

Trade Barriers Tariffs Embargos Quotas Law passed or action taken by the government of a country to restrict the flow of goods and services between itself and other countries Tariffs Embargos Quotas Voluntary Export Restraints (VER) Standards Subsidies

Trade Barriers Tariff tax on imported goods, discourages consumers from buying those goods Embargo total ban on trading due to political disputes (Cuba) Import Quota limit on the quantity of a good that can be imported into a country

Trade Barriers Voluntary Export Restraint (VER) reduction in exports, done to encourage another country to reduce trade barriers Standards Requirements a good must meet before it can enter the country as an import Subsidies Government transfer payment to exporting companies allowing them to compete with other nations at the international market price.

SSEIN2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade b. Identify costs and benefits of trade barriers over time.

Costs/Benefits of Trade Barriers Tariffs Provides revenue to importing country’s govt and protects domestic producers. Higher prices for consumers Inefficient use of resources Quotas Protection for domestic producers Limited availability for consumers, no matter how much they are willing to pay

Costs/Benefits of Trade Barriers Standards Protects consumers from unsafe or poor quality products. Protects producers making good products. Consumers may pay more or have limited quantities Subsidies Protects producers in infant industries Protects domestic jobs Taxpayers pay for the subsidy.

Costs/Benefits of Trade Barriers Protectionism Preserve jobs and industries in your country Save jobs that would go to countries with cheap labor Protect an infant industry that needs time to develop Protect national security for critical industries needed in a war

SSEIN2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade c. List specific examples of trade barriers

Trade Barriers - Examples 2002 U.S. Tariffs on Steel After bankruptcies of several us steel companies, President Bush issued tariffs on imported steel. European countries retaliated with tariffs on U.S. Steel U.S. withdrew the tariff in 2003 after WTO came out against them. U.S. Embargo against Cuba (1960-present) Almost total ban of trade between U.S. and Cuba Motivated by political opposition to Cuban govt.

Trade Barriers - Examples U.S. Agricultural Subsidies U.S. government provides transfer payments to agricultural businesses to allow U.S. farmers to compete in world market where prices are lower. USDA Labeling Standards Government requirement that all foods entering U.S. have proper nutritional and ingredient labeling. To protect consumers and equalize requirements of domestic producers

SSEIN2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade c. List specific examples of trading blocs such as EU, NAFTA, and ASEAN

TRADE ORGANIZATIONS Make a web on a piece of paper and in each circle list a type of trade organization and describe it

Trade Organizations

Current Free Trade Agreements Reciprocal Trade Agreement Act 1934 Gave FDR authority to adjust tariff rates, and power to negotiate bilateral trade agreements without prior congressional approval. U.S. grants “normal trade relations” status to trade partners

Current Free Trade Agreements World Trade Organization (WTO) Acts as a referee in trade to reduce tariffs and restrictions 149 Members

Current Free Trade Agreements European Union (EU) Unified economy of 27 European countries Many EU countries use a common currency (Euro) to further reduce obstacles to trade. Allows free movement of goods and workers across borders

Current Free Trade Agreements North American Free Trade Agreement (NAFTA) Eliminates trade barriers between Canada, the U.S., and Mexico

Current Free Trade Agreements ASEAN Association of South East Asian Nations 10 countries in SE Asia To promote free trade, economic growth, and collaboration between member nations

SSEIN2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade e. Evaluate arguments for and against free trade

Arguments for Trade Barriers Protectionism Protecting infant industries that need time to develop. Protecting national security for critical industries needed in a war. Protecting domestic employment. Protecting workers in developing countries from unfair labor practices. Protecting the environment in developing countries.

Arguments for Free Trade Cheaper prices on many imported goods results in higher standard of living for all countries. Free trade, efficient production leads to new industries and new jobs within those industries. Environmental standards usually improve as developing nations become more industrialized and as the standard of living increases. In the long run, developing countries tend to provide more rights and better conditions for workers as the labor force becomes more educated and richer.

Review Quia.com Unit 4 Quiz: Trade and Trade Barriers